New Sanctions on North Korea Could Raise Geopolitical Concerns

U.S. cash stock markets were closed on Monday due to the Memorial Day holiday. Trading will resume on Tuesday. In Chicago and New York, the trading pits were closed, but the electronic markets were open. Trading was light and volume extremely low as expected in today’s holiday-shortened trade.

In the cash market on Friday, the benchmark S&P 500 Index settled at 2721.33, down 6.43 or -0.24%. The blue chip Dow Jones Industrial Average finished at 24753.09, down 58.67 or -0.24%. The tech-based NASDAQ Composite closed at 7435.79, up 11.36 or +0.15%.

Despite the absence of economic data and earnings reports, traders who chose to participate in today’s limited action were likely taking cues from the events over the week-end that centered on the possible reinstatement of the meeting between President Donald Trump and North Korean President Kim Jong-un. If you recall, the meeting was surprisingly canceled by Trump last Thursday.

While U.S. and North Korean delegates scrambled to put the meeting back on track, The Wall Street Journal reported on Monday that the U.S. is prepared to unveil tough new sanctions on North Korea as soon as Tuesday, but could hold off as the countries try to revive the meeting, tentatively scheduled for June 12.

The Wall Street Journal, citing two administration officials, said the Treasury Department had assembled sanctions that would take aim at about three-dozen targets, including Russian and Chinese entities.

Political Uncertainty in Italy

Traders reacted to the news that Italy’s designated Prime Minister Giuseppe Conte, who credentials have been hit with scrutiny, met with Bank of Italy Governor Ignazio Visco on Friday, by selling Italian short-dated bonds. The two-year note rose as high as 35 basis points on Friday.

Although the two-year note posted a mild recovery on Monday, investors expect the move to be short-lived with another wave of selling expected sometime in the near future.

The political uncertainty drove the Euro to a 6 ½ month low against the U.S. Dollar on Monday. Although there was a late session recovery, likely related to the lack of banking activity due to the U.S. holiday. Nonetheless, the weak Euro Zone economic fundamentals coupled with the region’s political woes is likely to continue to attract fresh selling on any short-covering rallies.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil continued to be pressured by possible production increases from Saudi Arabia and other major non-OPEC producers including Russia. Reports are calling for an increase of up to one million barrels per day.

Some of the selling pressure was in response to another increase in the U.S. rig count. According to oil services firm Baker Hughes, U.S. energy companies added 15 rigs looking for new oil in the week-ended May 25, bringing the rig-count to 859.